Tax Type
Retail Sales and Use Tax
Description
Converted liabilities to the Taxpayer from LLC
Topic
Records/Returns/Payments
Responsible Officer
Date Issued
07-22-2013
July 22, 2013
Re: § 58.1-1821 Application: Retail Sales and Use Tax, Litter Tax
Dear *****:
This is in response to your letter in which you request the correction of converted retail sales and use tax and litter tax assessments issued to ***** (the "Taxpayer") for the periods October 2009 through January 2011 and January 2006 through December 2010, respectively. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer was the sole officer of and held a 100% interest in ***** (the "LLC"). The Department audited the LLC and issued assessments for unreported sales and use taxes on October 18, 2012, and unreported litter taxes on October 17, 2012. Pursuant to Va. Code § 58.1-1813, the Department converted the LLC's outstanding sales and use tax and litter tax liabilities to the Taxpayer on December 7, 2012.
The Taxpayer states that he was the CEO of a separate business in a different city and was not actively involved in the LLC's business. The Taxpayer's brother initially managed the LLC's business operations from 2004 until 2006. Subsequently, other persons managed the business. The LLC was not financially successful. The business ceased operations and the LLC's assets were sold in April 2011. The Taxpayer has provided documentation that includes a settlement statement that lists the LLC's final receipts, including the sale proceeds, and the final disbursements of the LLC. After payment of the LLC's debts, ***** remained after the sale was complete. The Taxpayer maintains that, pursuant to Va. Code § 58.1-1813 and Angelson v. Commonwealth of Virginia, 25 Va. Cir. 319 (City of Richmond, 1991), he is not personally liable for the business assessments made against the LLC.
DETERMINATION
Virginia Code § 58.1-1813 A states that:
-
- Any corporate, partnership or limited liability officer who willfully fails to pay, collect, or truthfully account for and pay over any tax administered by the Department of Taxation, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over, to be assessed and collected in the same manner as such taxes are assessed and collected.
Virginia Code § 58.1-1813 B defines the term "corporate, partnership or limited liability officer" as:
-
- an officer or employee of a corporation, or a member, manager or employee of a partnership or limited liability company, who as such officer, employee, member or manager is under a duty to perform on behalf of the corporation, partnership or limited liability company the act in respect of which the violation occurs and who (1) had knowledge of the failure or attempt as set forth herein and 2) had the authority to prevent such failure or attempt.
The Taxpayer maintains that he should not be held personally liable for the unpaid assessments issued to the LLC for two reasons. First, the Taxpayer asserts that he did not willfully fail to pay the taxes due because the Department's audit was not completed until 18 months after the LLC had ceased doing business. Second, the Taxpayer asserts that he had no knowledge of the LLC's failure to report and pay the liabilities at issue until the Department's audit was performed. When the Department's assessments were made, the LLC had settled and paid all its debts with the funds that were available when the sale of the business was finalized. In fact, the settlement included payment to the Department for back taxes that the settlement agent was made aware of at that time. A review of the Virginia State Corporation Commission's database also confirms that the LLC is no longer active.
Based on the facts and documentation presented, the Taxpayer was not knowledgeable of the sales and use tax and litter tax liabilities assessed in the Department's audit because the LLC ceased doing business 18 months prior to the audit. In addition, there was never a time when the LLC's creditors were paid in preference to the audit assessments issued by the Department because the LLC was no longer in business. For these reasons, the Taxpayer does not satisfy all of the conditions required to be considered a corporate officer pursuant to Va. Code § 58.1-1813. Accordingly, the converted assessments at issue will be abated.
The Code of Virginia section cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions concerning this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
Craig M. Burns
Tax Commissioner
AR/1-5301851899.S
Rulings of the Tax Commissioner